Taiwan boasts a world-renowned, complete semiconductor supply chain with advantages in vertical integration and specialization. Taiwanese companies maintain the largest share of the global foundry and chip packaging and testing markets and are thus entrusted by many foreign firms to provide these services. And despite the ongoing COVID-19 pandemic, the semiconductor industry has helped boost exports and fueled economic growth in Taiwan over the past two years.
At the same time, the world has faced serious challenges in terms of chip shortages due to insufficient production capacity and an imbalance between supply and demand. As a result, many countries have come to recognize the importance of self- reliance in the chip industry and plan to develop their own local semiconductor supply chains. Businesses have also been actively seeking effective solutions to meet client demands.
We believe that Taiwan can play a critical role in easing the current global chip shortage and the issue of insufficient inventory. However, we note several issues that could adversely impact that role, including strict trade- related regulations that do not align with international norms, a growing need for more high-quality and diverse talent in Taiwan’s semiconductor industry, and concerns about whether Taiwan’s current energy environment is stable enough to ensure the industry’s sustainable development.
In order to address these issues and strengthen the competitiveness of Taiwan’s semiconductor industry, we propose the following suggestions:
Suggestion 1: Streamline or eliminate the registration procedure under the TCCSCA for new chemical substances for R&D purposes.
The advancement of semiconductor technologies requires numerous innovations in materials, equipment, and processes. For example, the most advanced technology of the Taiwan Semiconductor Manufacturing Co. (TSMC), the 5-nanometer process node, involves an extreme ultraviolet (EUV) lithography tool that uses a wavelength of 13.5nm to create nanometer-sized features on silicon wafers. Innovation in materials to facilitate this EUV lithography is essential to enabling the mass production of 5nm integrated circuits. Materials companies, both international and domestic, must therefore continuously import new chemicals to be evaluated through R&D by Taiwan’s semiconductor manufacturers.
However, delays in the importation of these materials could potentially jeopardize the overall competitiveness of semiconductor companies in Taiwan. Currently, the registration procedure for new chemical substances under the Toxic and Concerned Chemical Substance Control Act (TCCSCA) takes three to four months on average to complete. As R&D evaluations of these chemicals may involve multiple phases and there is no guarantee of success in the first trial, such a long registration procedure severely delays the development of advanced technologies.
Under the current regulations, only research centers and universities are eligible for simplified registration of new chemical substances for R&D purposes, while all materials imported by materials companies and supplied to manufacturers – for R&D purposes or otherwise – must go through the normal registration process.
However, we note that other countries have adopted an R&D exemption for manufacturers. For example, Japan does not require publication of new chemical imports with a volume of less than one metric ton per year. In the U.S., registration is not required at all for R&D use of imported new chemicals. Rather, both the U.S. and Japan employ an honor system in which manufacturers and importers keep records of the R&D exemption to demonstrate their compliance if necessary. Meanwhile, China requires simple notification, with no review and approval period, for chemical imports with a volume of less than one metric ton.
Given that the initial volume of materials imported for R&D evaluation by chip manufacturers is usually much lower than one metric ton per year, the Committee strongly recommends an exemption or a shortened registration process (no more than two weeks) for new chemical substances to be used by manufacturers for R&D purposes in Taiwan.
Suggestion 2: Ensure a stable and secure energy environment to support the sustainable growth of the semiconductor industry.
The Committee welcomes the government’s recent announcement of its roadmap for achieving net-zero carbon emissions by 2050 (the Roadmap), which includes renewed targets for its energy mix, policies promoting the reduction of carbon emissions, and estimated government funding to support its goals.
While we applaud this initiative, we also wish to highlight the importance of a stable and sufficient power supply to supporting the development of the semiconductor industry. In addition, we emphasize that accessible and affordable renewable energy is critical for the industry to continue to grow sustainably.
Given the above, the Committee encourages further dialogue and action in the following areas:
Boost energy resilience. The Roadmap proposes specific policies to reduce emissions but is less clear on the goals for 2030. We believe it’s important to understand how the government will continue its efforts to increase the resilience of Taiwan’s energy system in the short term, including how it will ensure a stable and sufficient supply of power and strengthen the grid as it moves forward on its net-zero emissions goals.
Consider the industry’s use of renewable energy when implementing carbon-reduction measures. Currently, securing sufficient and affordable renewable energy in Taiwan is still challenging. The industry’s efforts on this front should be duly considered in the context of reducing its carbon footprint. We ask that the government’s implementation of measures such as carbon fees and carbon tax also take into consideration the industry’s use of renewable energy.
Create a more welcoming environment for renewable energy transactions. We recognize the government’s efforts to build a sound renewable energy market and are happy to suggest some alternative approaches for its consideration. For example, the government could issue “managed unbundled” renewable energy certificates (RECs), in which purchasers of renewable energy have the option of transferring their RECs to specific recipients while ensuring that the government has full visibility. Such an approach helps strike a balance between market flexibility and stability.
Suggestion 3: Increase the talent pool to maintain industry competitiveness.
Sufficient high-quality talent is critical to the continuous growth and technological advancement of the semiconductor industry. The Committee therefore applauds Taiwan’s establishment of four semiconductor academies at universities across the island and looks forward to similar endeavors in the future.
Nevertheless, Taiwan’s talent gap persists, and the semiconductor industry badly needs more diverse talent. As a result, the Committee recommends taking the following steps to create a better environment for cultivating and attracting both local and global talent in Taiwan:
1. Create a work environment that champions diversity, equity, and inclusion (DEI): Making our workplaces more diverse would likely better attract talent that would otherwise hesitate to join our sector. We encourage the government to work with industry to support DEI-related initiatives and help build a working environment attractive to a much broader workforce, in particular young talent.
2. Attract foreign talent: We suggest that the government work with industry to design new programs, or promote or finetune existing ones to better attract the foreign talent that industry needs:
a. Remove barriers to overseas hiring. For example, reconsider the existing restrictions on hiring foreign white-collar workers and streamline/simplify the application process for foreign talent, including foreign students who wish to stay in Taiwan after their studies.
b. Create a joint task force or platform for industries to approach foreign talent more easily. It takes a considerable effort for individual companies to identify and approach suitable talent in foreign countries. To make this process more efficient and convenient, the government could launch initiatives such as joint campaigns that demonstrate Taiwan’s competitiveness and showcase participating companies on a platform established by government and targeted at specific countries.
c. Provide incentives for cultivating foreign talent. Government and industry could collectively set up incentive programs that reduce foreign students’ financial burden. Those students, after living in Taiwan for years and taking relevant courses, can adapt more easily to the local environment and become suitable candidates for roles at semiconductor companies.
a. Expand the semiconductor academy program. This initiative is a milestone for the industry, and we encourage other universities to follow suit. In addition, we believe it worthwhile to study the feasibility of extending this concept to the undergraduate level to further cultivate talent and expand the talent pool.
b. Create a platform for facilitating industry-academia collaboration. Such cooperation is mutually beneficial to both sides and assists in cultivating suitable talent. The government could help launch such a platform and invite all interested parties to join and network with one another.
c. Encourage universities to design semiconductor- related courses/programs. Such programs could be integrated into existing exchange programs with foreign universities. As industry is more likely to hire foreign students with relevant experience and professional background, these programs would create an incentive for foreign students to live and work in Taiwan.
Suggestion 4: Ensure that semiconductor supply chain security measures and chipset security standards follow international practices.
The Executive Yuan’s National Information & Communication Security Taskforce (NICST) released the “National Information Security Development Plan” in February 2021, setting new four-year objectives for information security protection strategies and plans. This Committee applauds the government’s active implementation of policies to enhance information security and build a resilient smart nation. Particularly noteworthy are policy objectives related to constructing a secure and intelligent network, strengthening supply chain security management with a focus on the security of information and communication chip products, and improving 5G communication information security supervision.
We note that the government plans to establish a national chip security testing laboratory and is currently developing chip security testing standards and chip attack detection tools. However, information regarding the direction of this policy is still quite limited at this stage. Due to the high sensitivity of chip security issues, and because international standards organizations continue to develop security standards or guidelines, we suggest the following:
When formulating these important standards or principles, policymakers should study the basic rules of international information security standards; ensure a fair, open, and industry-led standard-setting process, and establish a consultation mechanism that is in line with international practices.
In addition to seeking the comments of industry through local industry associations, the draft chip security standards or testing guidelines should also be published in English and shared with the Semiconductor Committee in a timely manner, so that foreign companies also have the opportunity to participate in the process and provide comments.
Taiwan has the most complete semiconductor ecosystem in the world and plays a key role in the global ICT supply chain. Developing internationally acceptable chip security norms and standards will further cement Taiwan’s status as a semiconductor powerhouse.
Suggestion 5: Strengthen Taiwan’s competitiveness in the global semiconductor supply chain by resolving drop shipment and double taxation issues.
The committee applauds the government’s efforts to build Taiwan into an advanced semiconductor manufacturing center and a high-end production hub. However, we recommend that it provide policy incentives to relieve the industry’s supply bottleneck, starting by improving the efficiency of chip delivery and supply schedules.
We therefore suggest that the government reexamine the rationale for Taiwan’s current tax regulations regarding drop shipments, an issue that we share with the Tax Committee. As mentioned in that committee’s White Paper submission, if a foreign company ships products from a contract manufacturer in Taiwan directly to its foreign customers, the transaction is deemed a Taiwan sale and subject to local income tax, even if the sale is actually completed overseas while the goods are in Taiwan. Such treatment of drop shipments differs from other countries such as the U.S. and South Korea, and it could raise concerns about double taxation of drop-shipped goods.
Given the current regulations, foreign companies in Taiwan now refrain from making drop shipments, and instead often have the products first sent back to their home country or overseas distribution center before they are shipped to customers outside of Taiwan. This approach not only greatly reduces logistics efficiency and unnecessarily increases transportation costs and the carbon footprint, but also exacerbates the chip shortage problem faced by customers and the industry. At present, demand for drop shipping from global customers continues to rise.
We respectfully ask the government to consider the needs of the semiconductor supply chain and revise its rules on taxing drop shipments. Eliminating barriers to this practice would greatly cut transportation costs and shorten delivery times and would further incentivize foreign companies to place contract manufacturing orders with and invest in Taiwan’s semiconductor industry.
The Committee also looks forward to Taiwan’s conclusion of tax treaties with more major trading partners as it seeks to reduce the incidence of double taxation. We believe that an internationally competitive tax and trade environment will help strengthen Taiwan’s core position in the global semiconductor supply chain.